An Honest Look at Barnes & Noble's New Tablet Strategy

Later this week, Barnes & Noble (NYS: BKS) is rumored to be releasing a new Nook device which the book retailer hopes will better compete with rival Amazon's (NAS: AMZN) Kindle Fire e-reader. The new and (barely) improved Nook will include 8GB of storage, matching that of the popular Fire. That's a downgrade from its current Nook tablet, which boasts 16GB and retails at $249 a pop. By cutting back the Nook's storage, B&N should be able to offer its new device at a price point more comparable to the Kindle Fire's retail price of $199.

Still, I'm not sure this move makes sense for B&N. The book retailer isn't going to steal Kindle customers on price advantage alone. What Amazon's Kindle has that the Nook does not is a massive media ecosystem complete with an Amazon Prime trial for video streaming and free two-day shipping. With nearly half of Amazon's revenue coming from sales of books, videos and other media, its Kindle products act as a gateway to those services. Strong content offerings and competitive pricing helped Amazon snag 14% of the tablet market in its fourth quarter.

Competition boils over
It seems that everyone's struggling to gain share in the tablet market lately. Unfortunately for them, most tablets outside of the iPad and Kindle have failed to gain favor. Research in Motion's (NAS: RIMM) dirt-cheap Blackberry Playbook proved that competitive pricing isn't everything. Demand for RIM's tablet was so weak, in fact, that the company halved its 2011 sales projection for the devices.

Hoping to turn a corner, RIM upgraded its operating system and today released its new Playbook 2.0. However, even if the company hits it out of the park with its newer model, the damage is done. Similar to Barnes & Noble's upcoming tablet, these devices lack the application support of an Amazon or Apple (NAS: AAPL) product.

Tablet talk
B&N's Nook grabbed 5% of the tablet market, while Amazon's Kindle accounted for 6% and Apple's iPad captured 62% for fiscal 2011. Apple isn't idly standing by as competitors attempt to steal market share however -- the iPad maker is expected to launch its next-generation tablet in the second quarter of 2012, which should be met by robust demand. Throw Apple's Siri personal assistant into the mix and the upcoming iPad may very well crush rival tablet players.

Apple's growth story is far from over, but unfortunately Barnes & Noble's is far out of touch. To compete on the level of Amazon and Apple, B&N will need to deliver on more than mere cost. Nevertheless, we'll have to wait until its new Nook hits stores before getting a thorough read on the situation. Until then, add these stocks to MyWatchlist, and watch the tablet battles unfold.

At the time thisarticle was published Foolish contributor Tamara Rutter owns shares of Amazon and Apple. Follow her onTwitter, where she uses the handle@TamaraRutter. The Motley Fool owns shares of Apple and Motley Fool newsletter services have recommended buying shares of Apple and and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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